Over three million people may have paid the wrong tax at the same time as HM Revenue & Customs (HMRC) cut customer service jobs, a report by the National Audit Office (NAO) has found.

The 11,000 job losses are part of HMRC's new 'digital strategy', which involves moving more personal taxpayers online and reducing demand for more costly telephone and postal services.

But this caused chaos as average call-waiting times hit 47 minutes when paper tax returns were due last October, costing taxpayers an estimated £97 million in 2015/16.

While millions of people are hit by tax code errors every year, the NAO report found the number of outstanding discrepancies in tax records requiring investigation doubled from 2.4 million in March 2014 to 4.6 million in March 2015. Some 3.2 million of those are classed as high-priority, meaning those employees risk having paid the wrong amount of tax.

The report says: "HMRC aimed to move more customers online thereby reducing staff costs, but significant numbers of staff were let go before technical improvements were completed leading to a collapse in service quality in 2015. Services have since improved."

Costs incurred by HMRC helpline customers up £34 million in three years

The NAO estimates the overall cost incurred by people who called the taxes helpline increased from £63 million in 2012/13 to £97 million in 2015/16.

Of that £97 million, call charges amounted to £10 million, the value of customers' time spent waiting to speak to an adviser reached £66 million and value of time spent talking to advisers shot up to £21 million.

The report also found:

  • Some 58% of those using HMRC services rated it as 'good or excellent', 21% as 'average', and 21% as 'poor or terrible', according to an NAO survey. Satisfaction was highest among online customers and lowest among those whose most recent contact had been by phone.
  • Between 2010/11 and 2014/15, HMRC cut staff numbers in personal tax from 26,000 to 15,000. However HMRC recruited an extra 2,400 staff to the taxes helpline in autumn 2015 and this seems to have eased previous issues, the NAO said.
  • HMRC met its target to handle 80% of call attempts in only 10 weeks of 2014/15, the report found, and the situation deteriorated further over the first seven months of 2015/16, with average waiting times tripling compared with 2014/15 levels.
  • Meanwhile, HMRC is introducing digital tax accounts so that by 2020 most taxpayers will provide information through a live tax account instead of completing an annual tax return.

What the NAO says

Amyas Morse, head of the NAO, says: "HMRC's overall strategy of using digitally enabled information to improve efficiency and deliver service in new ways make sense to the NAO.

"This does not change the fact that they got their timing badly wrong in 2014, letting significant numbers of call-handling staff go before their new approach was working reliably. This led to a collapse in service quality and forced a rapid expansion of headcount.

"HMRC needs to move forward carefully and get their strategy back on track while maintaining, and hopefully improving, service standards."

Additional reporting by the Press Association.